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OPEB (Other Post-Employment Benefits)

Crucial (and complicated) concepts in public money explained.

Generally speaking, OPEB refers to retiree healthcare but can also include other benefits for retirees like life insurance or legal coverage. Unlike pensions, which is also a “post-employment benefit,” retiree healthcare is generally not protected or guaranteed. There is also no requirement to pre-fund the benefits whereas pension benefits are paid out of an investment fund maintained by the government. These characteristics have two main consequences: 1) OPEB costs are (except in a very few jurisdictions) are “pay as you go” and governments budget only enough money each year to pay the immediate bill for the retirees. 2) Mounting OPEB liabilities generally don’t get the same attention pension liabilities do even after accounting rules were changed in 2007 to require that governments estimate their OPEB liabilities on their balance sheets.

As Joshua Franzel, vice president of research for the Center for State and Local Government Excellence, puts it: “For the most part it’s easier to change the benefits or eliminate benefits [as] governments can tweak around the edges or cut out a lot of the subsidies they provide. [So] when these costs continue up, states are shifting more costs over to the retiree.”

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Daniel Luzer is GOVERNING's news editor.
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